The G20: Posturing while the economy craters

G20 summits are supposed to achieve two things. They’re supposed to give world leaders a forum for working together to solve problems too widespread or complex for one country to tackle alone. And they’re supposed to give the folks back home a little geopolitical theatre — powerful people talking about important stuff.

So how do we describe the Brisbane G20 chinwag? Little of substance, too much of the theatrical. Australian PM Tony Abbott desperately wanted the summit to work towards an agreement on strengthening tepid global economic growth. That didn’t happen.

Of course, Mr. Abbott was the one who earlier announced publicly that he intended to “shirt-front” Russian President Vladimir Putin over the invasion of Ukraine and the downing of that Malaysian airliner. Mr. Putin responded by showing up with some Russian naval vessels.

Mr. Putin basically taunted the G20 in Brisbane and then left early, citing his need to get some rest. The friction between Mr. Putin and other G20 leaders was the main focus of the international media. Prime Minister Harper’s succinct and direct comment to Mr. Putin — that he should get out of Ukraine — dominated Canadian coverage.

As for the economy, it appears the G20 nations have agreed to do … what they’d already agreed to do four years ago, at the Toronto summit.

According to the Brisbane communiqué, the G20 has agreed to:

… set an ambitious goal to lift the G20’s GDP by at least an additional two per cent by 2018. Analysis by the IMF-OECD indicates that our commitments, if fully implemented, will deliver 2.1 per cent. This will add more than US$2 trillion to the global economy and create millions of jobs. Our measures to lift investment, increase trade and competition, and boost employment, along with our macroeconomic policies, will support development and inclusive growth, and help to reduce inequality and poverty.

Now, the 2010 Toronto communiqué:

… The IMF and World Bank estimate that if we choose a more ambitious path of reforms, over the medium term: global output would be higher by almost $4 trillion; tens of millions more jobs would be created; even more people would be lifted out of poverty; and global imbalances would be significantly reduced.

Cut, paste, save. Given how little was accomplished, the G20 leaders could have left the tough talk — and the Russian navy — at home.

Cut to four years later in Brisbane and we find the G20 displaying a breathtaking gift for grasping the obvious: ‘The global recovery is slow, uneven and not delivering the jobs needed.’

Then again, maybe the 2014 communiqué simply reflects the G20’s failure to deliver on its 2010 commitments. After 2010 the global economy began to deteriorate rapidly with the collapse of the eurozone, Japan’s failure to recover, and the beginning of the decline in the Chinese economy and emerging market economies. Cut to four years later in Brisbane and we find the G20 displaying a breathtaking gift for grasping the obvious: “The global recovery is slow, uneven and not delivering the jobs needed.”

In short, the plan is the same plan we had in 2010. There are references to the need for countries to undertake structural reforms, to reduce barriers to trade, for more competition, more training and education, and incentives for hiring young people and encouraging entrepreneurship.

There is one important difference between the 2010 and 2014 summit conclusions — and it’s not a subtle one. In 2010, the thinking was that government had no role to play in strengthening global demand. The only thing required, according to the 2010 communiqué, was “growth-friendly fiscal consolidation plans in advanced economies”. That, of course, turned out to be a program for disaster.

In 2014, the G20 communiqué states in its opening paragraph that “the global economy is being held back by a shortfall in demand”. Structural reforms are necessary but not sufficient. Action is needed to strengthen global demand: “Tackling global investment and infrastructure shortfalls is crucial to lifting growth, job creation and productivity”.

That’s as good as its gets, unfortunately. The G20 offers little in terms of concrete proposals for action or commitments to undertake major infrastructure investments. There is agreement “on a set of leading practices to promote and prioritize quality investment, particularly in infrastructure”. There is an agreement to establish a “Global Infrastructure Hub … to foster collaboration … and improve the functioning and financing of infrastructure markets”. (Surely the OECD could have handled this.)

What’s missing in the G20 communiqué is any acknowledgement of the IMF’s recommendation on infrastructure spending in its October World Economic Outlook Report (WEO). The IMF, which advises the G20, posed a critical policy question for the G20: “(Given) the current environment of low government borrowing costs — real interest rates are expected to remain lower than pre-crisis levels for the foreseeable future — might this be a good time to increase public infrastructure investment?”

According to the IMF, the global stock of public capital — as a share of output — has declined significantly over the past three decades — a trend that’s particularly significant in emerging markets and developing economies. IMF research shows that an increase in public infrastructure spending of just one percentage point of GDP would raise the level of output by 0.4 per cent in the first year and by 1.5 per cent after four years. The IMF also concludes that “public investment in infrastructure” could not only “pay for itself”, but an increase in public investment that is debt-financed could have larger output effects than one that is budget-neutral.

This crucial advice from the IMF was completely ignored by G20 leaders — who say they are committed to fiscal sustainability but don’t seem to understand what that means. Instead, each country has come forward with lists of actions they intend to take to support the “global initiative”.

In the case of Canada, the G20 commitments amount to a long list of actions already announced in the past. Nothing new or incremental is being contemplated — and that’s no surprise. Most G20 countries are probably doing the same thing. The IMF and OECD have been tasked to monitor the implementation of these commitments and hold countries to account. Good luck on that. Sounds like 2010 again.

Finally, as has been the case in every year since 2010, the G20 leaders had to acknowledge that they still haven’t been able to implement the IMF quota and governance reforms that were agreed to in 2010. The reason this year is the same as in all previous years: The U.S. has been unable to ratify them because that would require the approval of Congress — which isn’t going to happen any time soon.

The IMF has warned us on multiple occasions that the global economy is heading into a decade of “mediocre” growth. The G20 appears unable to do anything to change that.

Scott Clark is president of C.S. Clark Consulting. Together with Peter DeVries he writes the public policy blog 3DPolicy. Prior to that he held a number of senior positions in the Canadian government dealing with both domestic and international policy issues, including deputy minister of finance and senior adviser to the prime minister. He has an honours BA in economics and mathematics from Queen’s University and a PhD in economics from the University of California at Berkeley.

Peter DeVries is a consultant in fiscal policy and public management issues, primarily on an international basis. From 1984 to 2005, he held a number of senior positions in the Department of Finance, including director of the Fiscal Policy Division, responsible for overall preparation of the federal budget. Mr. DeVries holds an MA in economics from McMaster University.

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